QUESTION 2 (IAS 28 &IFRS 3) (10)
Ramon Ltd invested in the equity of Amani Ltd a number of years ago. The payment for the 30% investment in the equity of Amani Ltd was agreed at $500 000. Ramon Ltd can appoint 2 out of
5 directors of Amani’s Board of Directors and accounts for the investments in its consolidated financial statements in terms of the equity method. Ramon Ltd also owns a controlling interest in various other subsidiaries.
Information on Amani:
Property plant and equipment |
1 200 000 |
Inventory |
1 000 000 |
Cash and cash equivalence |
600 000 |
Share capital |
300 000 |
Retained earnings (01/01/12) |
700 000 |
revenue |
800 000 |
Cost of sales |
300 000 |
Operating expenses |
150 000 |
Income tax expenses |
50 000 |
Inter-entity loan |
1 500 000 |
Required:
Provide all necessary proforma journal entries to equity account Amani Ltd in the consolidated annual financial statements of the Ramon Ltd group of companies for the year ended 31/12/17 indicate all calculations clearly. (10)
Financial accounting 3A
Requirement 3 | (Please Round off as per system Requirement) | ||||||
Allocation of Cost of service departments using Reciprocal method. | |||||||
TO | |||||||
From | Administration | Accounting | Domestic | International | |||
Department costs | $ 3,52,000 | $ 1,46,000 | $ 9,45,000 | $ 36,00,000 | |||
Administration allocation (24:54:22) | $ (4,14,917) | $ 99,580 | $ 2,24,055 | $ 91,282 | |||
Accounting allocation(31:18:72) | $ 62,917 | $ (2,45,580) | $ 36,533 | $ 1,46,130 | |||
Totals | $ - | $ 0 | $ 12,05,588 | $ 38,37,412 | |||
Workings : | |||||||
Let us build cost equations for both the service departments: | |||||||
Administration department Y = $352,000 + 31/121(X) | |||||||
Accounting department X = $146,000 + 24/100 (Y) | |||||||
Substituting Y in X: | |||||||
X = $146,000 + 0.24(352,000 + 31/121(X)) | |||||||
X = $146,000 + 84480 + 0.24 *31/121(X) | |||||||
X = $245580 | |||||||
now, Y = $352000 + (31/121($245580)) = | $ 4,14,917 | ||||||
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